Charlie and Joe Speak on NY Sports

[Scott Greczkowski]

DISH Network Chairman Charlie Ergen and DISH Network CEO Joe Clayton recently spoke about the lack of sports in NY on their earnings call.

Here is a portion of that transcript.

Question from Benjamin Swinburne - Morgan Stanley, Research Division

Great. And if I could just ask one follow-up to Charlie and/or Joe. And a lot of the sort of popular press continues to write about the need for smaller packages of programming, cheaper packages of programming, and I know DISH has tried that in the past with some low-end $25, $20 packages. And Time Warner Cable has one that they commented on their call that the demand has been pretty modest so far. I think you guys have a sports-free offer in New York, because you don't carry the RSNs here. Do you see that as a sort of a strategy going forward to try to take share, to sort of go after maybe a lower-end product? And if you do, what's the timing look like on rolling this more out and putting some marketing punch behind it?

Answer from Joseph P. Clayton

This is Joe Clayton. I'll try to take that. Charlie can comment if he'd like. I'm a big believer in having step-up selling and a good/better/best, if you will. And just recently, we incorporated into our programming offers a $19.99 starting package, if you will. And if we do this right, we will have variety selection and choice as a major differentiator for DISH in addition to a value that we create with our customers and also as we move forward, technical superiority in terms of our product. So yes, it's an important part of our marketing equation. And yes, we have already begun to implement that. But most importantly, we are still -- even at $19.99, we're looking for quality customers that have appropriate credit scores so they won't churn on us in a year or so.

Answer from Charles W. Ergen

This is Charlie. Just to -- I think this is going to be interesting because the price of sports programming has gotten so kind of out of line compared to what that -- so sports programming may be 20% of the viewing on a day-to-day basis but it may be 50% of the cost that the consumer pays, and so not everybody is -- probably most people in this call are sports enthusiast but not everybody is. And it's going to be interesting what happens because you've really got 4 providers in every market now, the phone company, cable company and 2 satellite companies so -- and everybody sells the same thing, everybody's packages are generally the same. And contractually, the sports providers require that you put their program in a vast majority of their contracts. So as contracts come up for renewal, I would say there could be a day when one of the big providers just doesn't have a sports offering so they can differentiate their programming in a major way so they -- I mean, in theory, their cost could be cut by half to the consumer but the consumer who really likes sports, those 20% or 30% of the people who are sports enthusiasts, would not be your customer. But you'd be more attractive to the other 50% or 60% or 70% of the customers that are out there. And if the economy continues to struggle along, that's probably a valid long-term strategy. We almost went there last year with FOX Sports. We ultimately were able to reach an agreement. But had we not, we were certainly prepared to not have regional sports. We don't do it in New York today, as an example, and we certainly have plenty of customers in New York. So I think that there's a limit to where sports cost can go and at some point, it's not going to be in 90% of the homes at some point if the costs go too high. So that is interesting to see, how it shakes out, and we're -- we look when -- we just look at that on a case-by-case, we'd like to -- I think we'd like to have sports. We'd like to have a lot of variety for our customers but we have to have deals that make sense. And there certainly becomes a time when a deal doesn't make any sense and a sports offering might not make sense, and that's been the case for us in New York. It could happen in other places.

 

[navychop]

"I mean, in theory, their cost could be cut by half to the consumer......But you'd be more attractive to the other 50% or 60% or 70% of the customers that are out there. And if the economy continues to struggle along, that's probably a valid long-term strategy."

QFT.

Thank you, Mr. Ergen!

 

[Tampa8]

I think some of us realized quite some time ago this is exactly the Dish strategy. It is also why many thought not having some sports might not be such a bad idea if it was going to cost so much, yet the percentage of subscribers is relatively small who would demand it.

 

[isaacmorseMI]

At least they broke the silence about this whole thing....

 

[HanoverPretzel]

But most importantly, we are still -- even at $19.99, we're looking for quality customers that have appropriate credit scores so they won't churn on us in a year or so.

Most people who can only afford a $20 television package have low credit scores because when you're poor, if you ever get hit with some sort of major medical expense or whatever, you have trouble paying and it screws up your credit for a really long time. I don't think the "people who are financially well off but want a really crappy television package" market is all that big. If you're marketing a $20 package that has basically nothing significant in it, you aren't going to have tons of people with awesome credit clamoring for that. It's like trying to sell low-end used cars with over 200,000 miles on them to a millionaires. It doesn't make a whole lot of sense. People who buy low-end stuff usually do so because money is tight and the medium to high end stuff is either beyond their reach or would strain their budget too much in other areas.

So I think that there's a limit to where sports cost can go and at some point, it's not going to be in 90% of the homes at some point if the costs go too high.

I doubt this'll happen. It doesn't make sense as a business model for the major sports leagues, really. Advertising revenue would plummet. No one would buy the merchandise. People would stop being fans, and even if they improved their financial situation later, their interest in and loyalty to sports franchise would probably have disappeared in the intervening decade or two or however long they went without access. You'd also have a lot of kids growing up without access to sports and thus never establishing any loyalty to teams or players in the first place.

One has to think sports leagues and franchise are aware of this and would begin to tie who they awarded their television contracts to in the long run to how many homes they can get their games into. Then again, the NHL has now not only signed one, but two agreements with Versus, so maybe not...

It's a depressing thought to a sports fan that greed on the part of the owners of teams, of television stations, and of television providers (I don't think we can leave that out of the equation when we see the profit reports of companies like Dish, Comcast, etc..), would lock the average Joe out of following teams that they've loved their entire lives and where loyalty goes back generations.

And there certainly becomes a time when a deal doesn't make any sense and a sports offering might not make sense, and that's been the case for us in New York. It could happen in other places.

That's basically like saying "Hey, sports fans, under no circumstances sign up for anything with us that requires a commitment of any sort.", because we might pull the rug out from under you at any second to where you'll be stuck paying for something for years that doesn't give you any value (Assuming you are mainly subscribing for sports content).

 

[navychop]

"...I doubt this'll happen. It doesn't make sense as a business model for the major sports leagues, really. Advertising revenue would plummet. No one would buy the merchandise. People would stop being fans, and even if they improved their financial situation later, their interest in and loyalty to sports franchise would probably have disappeared in the intervening decade or two or however long they went without access. You'd also have a lot of kids growing up without access to sports and thus never establishing any loyalty to teams or players in the first place.

One has to think sports leagues and franchise are aware of this and would begin to tie who they awarded their television contracts to in the long run to how many homes they can get their games into. Then again, the NHL has now not only signed one, but two agreements with Versus, so maybe not...

It's a depressing thought to a sports fan that greed on the part of the owners of teams, of television stations, and of television providers (I don't think we can leave that out of the equation when we see the profit reports of companies like Dish, Comcast, etc..), would lock the average Joe out of following teams that they've loved their entire lives and where loyalty goes back generations...."

Perfectly sensible. But history shows us many examples of the killing of the golden goose due to greed and power craving. Look at the United States Maritime Unions, Hollywood execs, CEOs of many corporations, rich trial lawyers.......

 

[elmafu69]

I love sports but someone needs to stand up to the sports leagues at some point. Dish should totally go with a sports add-on pack. Most of my friends would switch out of sports if given the chance.

 

[mike123abc]

The problem is that programming is probably only 20% of the average Dish bill. Dish has to cover all the equipment, satellites, uplinks, etc.

So, saving 50% of the programming is probably only 10% of the bill. It is a harder sell to say for 10% less or $5 off a $50 bill you as a provider will be able to attact a lot more customers than the ones you lose because of it.

But, given the reports of high rate of fee growth in sports programming, perhaps in a few years it will grow to be 20% or even 30% savings. Then I think people will take notice.

 

[chicagonettech]

As soon as it is offered, we will JUMP at the chance to go to a SPORTS FREE account. If someone else offers it before Dish Network, we will, in spite of being a founding customer of Dish Network, close our Dish Network account and go where the NO SPORTS packages are offered.

A real deal setter would be: NO SPORTS, NO SELLATHON CHANNELS, NO RELIGION CHANNELS, ALL HD, but somehow I do not see that ever happening.

 

[jimdandyvi]

The greed of major league baseball has already killed off part of their market. All world series games are now night games so how many children have the opportunity to watch the fall classic and become baseball fans?

 

[AlaJoe]

A real deal setter would be: NO SPORTS, NO SELLATHON CHANNELS, NO RELIGION CHANNELS, ALL HD, but somehow I do not see that ever happening.

That is the exact package I would like. Let someone offer that at a nice savings and I will leave for it also

 

[pabeader]

That is the exact package I would like. Let someone offer that at a nice savings and I will leave for it also

offer it with NO savings and I would still jump to it.

 

[Yespage]

As soon as it is offered, we will JUMP at the chance to go to a SPORTS FREE account. If someone else offers it before Dish Network, we will, in spite of being a founding customer of Dish Network, close our Dish Network account and go where the NO SPORTS packages are offered.

A real deal setter would be: NO SPORTS, NO SELLATHON CHANNELS, NO RELIGION CHANNELS, ALL HD, but somehow I do not see that ever happening.

Sellathon and religion channels pay to be shown. So you'd be a little nuts to want those off as that'd increase your bill. It is easy to clip those channels with the Guide Settings.

 

[jerryez]

So, if Dish is saving money on Sports packages, why hasn't any of this savings been passed on to the consumer. ME! I notice their profits are way up.

 

[jerryez]

A real deal setter would be: NO SPORTS, NO SELLATHON CHANNELS, NO RELIGION CHANNELS, ALL HD, but somehow I do not see that ever happening.

We almost had it with the Absolute package.

 

[DodgerKing]

Here is the problem with their thinking:

1. What the customer pays for their service is not that much less expensive than what they will pay for service with another provider, and the other providers do have the sports programming. In some cases the other providers are less expensive, depending on a particular setup or bundling deals.
2. One of the main reasons people chose DBS over local cable or broadband is to get packages and channels that are not offered locally, namely sports. This is how DirecTV competes with local services.
3. What does Dish offer that seperates them from the competition? Why would someone in NY pick Dish over local cable or broadband?

 

[Tampa8]

So, if Dish is saving money on Sports packages, why hasn't any of this savings been passed on to the consumer. ME! I notice their profits are way up.

First compared to Cable prices, they are less. Take away incentives, and compare what you are actually getting, and Dish is less certainly most of the time. They are less than Direct, though not in every case. (Those with many receivers)
And you ignore they are offering packages well below in cost what most providers offer, or at least more choices in lower packages. That is possible directly by having lower costs and they can offer little profit packages. So while someone with the highest package, while still less than other providers may not see as a dramatic price difference in every case, the person at the bottom end does see a dramatic difference in what you get and the cost. And maybe their savings is why they had the price freeze, and if others now do it's because they had to match Dish.

But more importantly, what do you think they have been doing with those profits? They have obviously been investing them into the business. Satellites, Blockbuster, probable internet, new receivers, and on and on. It's often the company offering the best value - not the lowest cost who does well and makes the profits. How is that bad for the consumer. Why be bargain basement, when you can offer alot for the money.

 

[Tampa8]

Here is the problem with their thinking:

1. What the customer pays for their service is not that much less expensive than what they will pay for service with another provider, and the other providers do have the sports programming. In some cases the other providers are less expensive, depending on a particular setup or bundling deals.
2. One of the main reasons people chose DBS over local cable or broadband is to get packages and channels that are not offered locally, namely sports. This is how DirecTV competes with local services.
3. What does Dish offer that seperates them from the competition? Why would someone in NY pick Dish over local cable or broadband?

I would say you are still stuck on Sports. Most people, and I am talking a very high percentage do not watch enough sports to care if they have it or not. Of course Dish lost customers by not having sports in NY, or even by not having RSN's games in HD. But at this point, most of those subscribers are gone if they are going to leave. Sure there are a few who will sign up not knowing about the games not always in HD, but again a very low percentage will care enough to switch if they are happy overall. It sure seems obvious to me sports is becoming too expensive and it will catch up even more if the others keep paying the escalating prices. As I posted above, it isn't all about the end cost to the consumer, though that is very important, but it is also how much is left in profit to invest and make the product better.

 

[dwarren2]

I wish they could set up a NY Sports package for those who want MSG and SNY. I'd be willing to pay extra for that. I looked into upping my super basic cable to basic so I could get MSG so I could watch the Sabres on TV, but it would have added over $40/mo to my bill. Being retired, I could not justify that. So I've had to resort to other methofd to watch some of the games.

 

[DodgerKing]

I would say you are still stuck on Sports. Most people, and I am talking a very high percentage do not watch enough sports to care if they have it or not. Of course Dish lost customers by not having sports in NY, or even by not having RSN's games in HD. But at this point, most of those subscribers are gone if they are going to leave. Sure there are a few who will sign up not knowing about the games not always in HD, but again a very low percentage will care enough to switch if they are happy overall. It sure seems obvious to me sports is becoming too expensive and it will catch up even more if the others keep paying the escalating prices. As I posted above, it isn't all about the end cost to the consumer, though that is very important, but it is also how much is left in profit to invest and make the product better.

The issue is not so much sports, but offering something that subs cannot get with local cable, broadband, or other DBS providers, particularly in NY.